Property experts at odds over house pricing forecasts

Property experts are at odds over a report from BIS Shrapnel suggesting housing prices will increase by up to 22% over the next three years, with some advisers casting doubt over whether another boom in house prices is actually possible.

The BIS Shrapnel Residential Property Prospects 2009 to 2012 report argued that “the conditions are ripe for a sustained recovery in residential property prices”.

The report claimed that Sydney, Melbourne and Adelaide will record price increases of about 19% over the next three years.

But Louis Christopher, head of property research at Adviser Edge, says that solid forecasts for the next three years are too difficult to make in the current economic environment.

“In turn, I think it’s likely that we don’t have a massive boom. If we have ramped inflation occur, that could trigger a boom but we think that’s unlikely. We think the likely outcome is where we see a flat market for the next 12 months”

Christopher argues there are too many “x-factors” in the global economy and that government intervention, which regularly has a deep impact in the property market, is hard to anticipate.

“The government may make a grant for investors, or completely eliminate all grants, that’s an x-factor that’s difficult to predict,” he says.

RP Data property researcher Cameron Kusher agrees, saying “it’s very hard to forecast anything three years ahead”, and that the BIS forecasts do not take inflation into account.

“We don’t do forecasts ourselves, as we’ve seen in the last year that economics and property markets can turn quickly and must be approached with caution.”

“That 19% growth prediction in Melbourne and Sydney hasn’t been explained, and hasn’t taken into consideration CPI. So you’re really looking at 7-10 % real growth which is not particularly strong growth at all.”

But Jason Anderson, a senior project manager at BIS Shrapnel who contributed to the report, defended the forecasts, and says they were based on the forecast that housing construction will lead the economy out of the downturn.

“Our view is that housing construction will pick up in order to compensate for weakness in other parts of the economy. If you look at other recessions, they come about because business investment stays weak and low. In that environment, we need a housing construction upturn.”

Anderson also defended the report’s forecasts, saying the difference between other predictions of 10% growth and BIS Shrapnel’s own 20% forecast is “not substantial”.

“We shall see what happens. The difference between 10% and 20% increases, if you spread that over three years, is not substantial. It depends on where within the market you’re talking about, so I wouldn’t get too hung up on a particular percentage growth rate. 20% is about 6% per annum, which if you go back over the last 30 years is pretty close to trend growth.”

Meanwhile, National Bank of Australia chief economist Alan Oster told Business Spectator that housing prices are subject to rising unemployment, and will actually fall over the next year.

“Overall we would still expect to see house prices on average across both categories down about 5% to 10% over the next 12 months.

“That’s because we see unemployment going up and that’s a really important driver of house prices, so as unemployment goes up, more people feel like they have to basically sell their house to get out of it and that basically floods the market and so we would expect to see modest falls in house prices.”